(Bloomberg) – U.S. state insurance regulators may reduce their dependence on firms including Standard & Poor’s and Moody’s Investors Service, saying they are looking into ratings “shortcomings.”

The National Association of Insurance Commissioners has assigned a group to explore “the reasons for recent rating shortcomings” and “the problems inherent in reliance on ratings,” the group said in a statement on its Web site.
The watchdogs are conducting their review after insurers’ portfolios were buffeted by downgrades to commercial mortgage- backed securities held to help back policies. Regulators currently rely on ratings assigned by S&P, Moody’s and other firms when calculating the amount of capital insurance companies must hold to protect against losses on CMBS and other so-called structured securities.

The potential that insurers will need more capital because of downgrades “is on our radar screen,” NAIC President Roger Sevigny said in an interview. New York Insurance Superintendent Eric Dinallo and Michael McRaith, director of insurance for Illinois, are heading the NAIC group, which was set up “for this very sort of thing,” Sevigny said.

“Since insurance regulators make very heavy use of those ratings we thought it was important to look to fix where there have been some very obvious problems,” said David Neustadt, a spokesman for Dinallo.

Regulators are seeking to “engage the rating agencies in a constructive dialogue,” McRaith said.

Abbas Qasim, a spokesman for Moody’s, declined to comment. Edward Sweeney, a spokesman for S&P, didn’t immediately return an e-mail seeking comment.